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Housing market isn’t playing by the rules

It is difficult to say exactly what is happening to the housing sector – but the market certainly is not behaving as it should.

Above is the latest information from the Central Bank regarding lending to Irish households. The red line shows that the total lending for buying a home is continuing to fall. That is partly explained by people paying back loans faster than home buyers are taking new mortgages.

Negative equity, the belief that prices could recover further and potential loss of low-interest tracker mortgages could all be factors which discourage people from selling homes.

The supply of homes, particularly in the capital, remains tight.

There is a variety of surveys about the property market. One interesting study is carried out by Trinity College lecturer Ronan Lyons who analyses the asking prices from website Daft.ie.

The study has proved a useful indicator of future trends in the property market. In 2011 it correctly predicted a rise in prices in the capital.

Now Mr Lyons says his main concern is the restricted availability of homes for sale. He says only 10,000 homes in Dublin are coming on the market annually.

“The Dublin market may need as many as 30,000 listings a year to meet the various sources of demand – the first time buyers, trader uppers and trader downers,” he says.

Perhaps the most eye catching part of his report is that asking prices have risen by 15% in the capital in the past 12 months.

In some parts of capital the Daft report says prices could be set to increase by as much as 18% (above). It says the trend outside Dublin is that prices are beginning to increase too.

One interesting question is whether there is a bubble emerging in the Dublin market. Normally a bubble would be associated with a credit boom, but that is not happening judging by the Central Bank’s credit figures.

Normally when prices rise, builders build. But the fall-out from the construction collapse seems to be continuing to hamper the ability of the industry to respond to rising prices and increased demand.

The Government has been examining the idea of taking steps to encourage more development in the capital.

It is clearly a laudable idea because there is perceivable market failure. However, governments don’t have a good track record when it comes tampering with the housing market – particularly in Ireland.